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Netflix Will Lead The New Media Era

Netflix, Inc. (Nasdaq: NFLX) gained another 2.2 percent on Thursday after Barclays said Netflix could grow to become the second biggest media company in the world within three years. Even with the stock up more than 1,450 percent in the past five years, Barclays analyst Kannan Venkateshwar says it’s not too late for investors to hop aboard the Netflix train.

According to Venkateshwar, Netflix’s growth comes down to two numbers – content cost and subscriber growth. If Netflix can continue to grow its subscriber count at a faster rate than its content costs, NFLX stock will likely continue to outperform.

Venkateshwar says Netflix’s total addressable global market size could reach 185 million by 2025, and Netflix could add an additional 53 million international subscribers over the next three years.

At the same time, Netflix will continue to spend aggressively to beef up its content library. Venkateshwar says Netflix will spend between $10 billion and $12 billion on content in 2018. Barclays estimates are even higher than Bank of America’s $8 billion estimate earlier this week.

Despite rising costs, Venkateshwar says Netflix will likely maintain a large degree of pricing power, even in the face of new services from Walt Disney Co. (DIS) and other streaming competitors. He says customer inertia is the single largest component of media pricing power, and the cord-cutting generation of Netflix customers now see Netflix as a must-have subscription.

“Inertia tends to benefit early movers and market leaders and is likely to help pricing growth and costs to potentially drive margin expansion over time,” Venkateshwar says. “In our opinion, in the next three to five years Netflix is likely to become the second biggest media company by revenue, ignoring studios and theme parks, next only to Disney.”

Still, not everyone on Wall Street is convinced that Netflix stock has significant upside. Citi analyst Mark May says much of Netflix’s long-term growth potential is already priced into the stock.

“Given that NFLX’s valuation appears to already largely reflect the long-term bull-case assumptions and that competition appears to be rising, we maintain…

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